THE LARGEST SOCIAL SERVICE PROVIDER IN THE USA FILES FOR BANKRUPTCY

On May 13, Lutheran Social Services (LSS) filed for bankruptcy. The organization was founded on February 24, 1919 under the name ‘Lutheran Children's Home Finding Society’ and performed activities in the state of North Dakota, which is called one of the most religious regions of the United States (about 35% of the population are Lutheran) due to the huge number of churches located here.  

Experts say the reason for the bankruptcy of the LSS is the program for the formation of funds for affordable housing in rural areas. The organization invested more than $ 16 million in housing construction, having borrowed another $ 45 million. The development of housing projects was associated with the boom in shale oil production that began in the 2000s. Its significant reserves were located precisely in the territory of North Dakota in the Bakken Formation, named after a local farmer.

The Lutheran Social Services organization became the owner of 20 housing complexes, and 14 more objects were under its management.

The activities of LSS covered 22 communities in North Dakota. Housing was provided to about 1,400 residents of the state. However, on January 15, 2021, the organization announced that it was forced to curtail the housing program in order to pay off the debts to creditors.

The spending on housing development appropriations significantly exceeded the revenues. LSS chief executive Bob Otterson says in the documents attached to the petition that some projects did not generate any required profit at all.

A significant part of the debt is secured by pledged assets owned by the credit institutions. For example, First International Bank & Trust is demanding $ 8.3 million from LSS for a 124-apartment Prairie Heights residential complex built in Watford City. Several other banks have previously filed claims against the organization to repay loans.

The organization owed almost $ 592 thousand to the Gate City Bank, another $ 150 thousand was owed to American State Bank & Trust.

When filing a bankruptcy petition, Lutheran Social Services asked a court in the city of Fargo to provide a legal opportunity to use the bond to pay necessary expenses. This is what CEO Bob Otterson called “orderly winding down”. Otterton himself actually found himself in the role of liquidator, having become a head of the organization in early December last year, 6 weeks before the board of directors decided to close LSS.

Management hopes that filing for bankruptcy will allow the gradual liquidation of assets, as well as transferring the key functions and projects management to other organizations. One of these LSS projects was Luther Hall in Fargo, which treated children between the ages of 10 and 17. It will be sold to Nexus Family Healing, a non-profit group that specializes in treating children with emotional and behavioral disorders and working with foster families.